The yuan displayed greater volatility today but steered clear of testing a newly expanded trading band, as Beijing tries to guide the economy through a controlled cooldown.
The yuan opened sharply weaker than the central bank's midpoint fixing, but even at its weakest point remained within the boundaries of the old trading band in effect prior to the recent move announced over the weekend.
At its weakest point early today, the currency traded at 6.3250 per dollar - 0.46% weaker than the midpoint and 0.3% weaker from Friday's close - just within the previous 0.5% limit and well shy of the new 1 percent band that went into effect Monday.
By early afternoon, however, the currency pared back much of its early losses, recovering to 6.3139, down 0.17% from Friday's close.
"We think this decision reflects PBOC's desire near-term for greater two-way price action and intra-day volatility... to better cope with more volatile and somewhat smaller balance of payment inflows into China," Barclays analyst Olivier Desbarres said in a note.
The yuan weakened in opening trades as some dealers anticipated downward pressure due to the dollar's global strength.
A weaker currency would provide a cushion for exporters struggling with flagging demand from Europe and the United States, China's two biggest trading partners.
But Beijing has a history of allowing the currency to rise ahead of major international gatherings, and there are two coming up. The International Monetary Fund's meetings are next week, and the Strategic and Economic Dialogue between the United States and China is expected in early May.
The yuan has consistently traded weaker than the central bank's midpoint since mid-March, leading some to anticipate broader depreciation following the central bank's move giving the yuan more freedom of movement.
